As per subsection 69 Section 2 of the Companies Act 2013 a person who is named promoter in the prospectus and is identified by the company in annual return in section 92 is a promoter. The term promoter does not come under law but it is a term that is related to business. Promoters comply with the necessary formalities of the company. They deal with the registration of the company, find directors and shareholders for the new company, negotiate business contracts on behalf of the company, they acquire business sets for the company, and comply with any other necessary or important formality a company needs.
According to L.J. Brown. "The term promoter is a term not of law but business, usefully summing up in a single word many business operations familiar to the commercial world by which a company is generally brought into existence."
According to Justice C. Cockburn. "Promoter is one who undertakes to form a company regarding a given object and to set it going, and who takes the necessary steps to accomplish that purpose."
According to Palmer, "Company promoter is a person who originates a scheme for the formation of the company, has the memorandum and the articles prepared, executed and registered and finds the first directors, settles the terms of preliminary contracts and prospectus (if any) and makes arrangement for advertising and circulating the prospectus and placing the capital."
The function of a promoter is to determine the possibilities and think of the idea of forming a company. They negotiate for the purchase of the company and whether they are intended to purchase in the existing company. Promoters decide who will be the legal advisers, the auditors, the bankers, the brokers or underwriters for the capital issue, the form and amount of its share capital, the location of its registered office, and the name of the company.
Promoters are responsible to draft MOA and AOA that is a memorandum of Association and an Article of Association respectively. Promoters make preliminary contracts great vendors, underwriters, and others. They also make arrangements for prospectors, and issues of the capital. They deal with the registration of the company and also obtain the certificate of incorporation. They defray criminally expenses and arrange a minimum subscription. The promoters carry out necessary negotiations which are to be conducted for the purchase of the business. They also collect the requisite number of the person if the company is a public company or a private company, so the number will be 7 or 2 respectively. they need to sign the memorandum of association and article of Association and act as the first directors of the formed company.
A promoter needs to disclose any relevant material facts as the promoter must do so. The promoter also has to disclose any private arrangement which provides him with an opportunity for profit For promoting the company. A promoter needs to stand about the future allottees of the share. A promoter should not make any secret profit While promoting the company, if he has done so he needs to disclose it to the company.
Unless provided or mentioned in a contract, a promoter will not have the right against the company for remuneration. A director pays a specific amount to promoters for the service they have obtained and this is provided in the article of the company, however, it does not give a promoter contractual right and he cannot see the company. So paying a promoter is an authority vested in the director. If the promoter has incurred legitimate expenses during the formation of the company he has the right to get paid those expenses. Such expenses include the cost of advertisement and fee of solicitor etcetera. But it is not contracture right and it depends on the discretion of the director. A promoter will be held liable jointly and severally if there is any untrue statement return or provided in prospectus and if there are any secret gains made. A promoter can claim against another promoter for the compensation and damages paid by him if there are two or more promoters in a company.
There is a fiduciary relationship between promoter and company which is solely based on confidence and trust, that is why a promoter needs to disclose any profit which is made by him and every relevant fact which is related to the formation of the company.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.
